Will your bank be on your side if it gets hit with a cyberattack? – Doug Criscitello

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

From The Hill

In a recent column, I discussed cyber risks that could adversely affect bank and brokerage customers and explored the conditions necessary for development of actuarially sound insurance products at the retail level to protect individuals from the most catastrophic of cyberattacks to their accounts.

While new consumer-oriented insurance products are being offered to guard against cyberattacks, they don’t necessarily mitigate a consumer’s nightmare scenario. That scenario goes beyond having personally identifiable information stolen to having your bank’s digital records wiped out or otherwise corrupted by a malicious actor, eliminating any history of your account balances. So this is the question: would your bank or brokerage stand by you in the event of such an attack or is cyber risk insurance necessary?

Regardless of the availability of cyber risk insurance for individuals, the threat to consumers flows from vulnerabilities within and across financial institutions. To the extent an individual’s bank or other financial services provider has strong institutional defenses, risk to individuals falls dramatically.

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Can cybersecurity insurance protect consumers from attacks?–Doug Criscitello

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

From The Hill

As we move beyond the widespread acceptance and use of online banking and trading platforms and push further into an increasingly digital financial marketplace, consumers face new forms of risk—namely, cyber risk—that would have been unfathomable previously. When confronted with risks that could be financially devastating, consumers are driven to mitigate and insure against such perils. Has the time come to purchase insurance for financial cyber risks?

Rational consumers seek to prevent, minimize or avoid adverse financial outcomes by purchasing insurance to protect against actual and perceived risks they can’t easily afford. Insurance essentially serves as a risk management and wealth preservation tool. However, consumers realize that it doesn’t make sense to purchase insurance when the cost of coverage is so high that they will pay substantially more in premiums than expected losses. In other words, they decide that self-insuring is the more cost-effective alternative.

Individuals today are increasingly concerned about their online security but don’t have a clear understanding of the amorphous yet perilous risks they face. In response, new consumer-directed insurance products are being offered to guard against cyber attacks.

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Building trust in a government through a 21st century approach to financial management–Doug Criscitello

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

From MIT Golub Center for Finance and Policy

As the keynote speaker at a recent conference of the International Consortium on Government Financial Management held in Washington DC, I had the opportunity to discuss with representatives from over 40 countries one of the primary challenges facing governments around the world – citizen engagement.

My remarks emphasized that recent populist movements should be a wake up call to everyone involved in government – including those in the budgeting and finance communities – on the need to turn citizen cynicism into engagement and buy-in.

The growing availability of technology and data should be enabling a highly informed citizenry (i.e., voters) armed with actionable information. Moving beyond tired factory-like mindsets where government financial staff spend their days grinding out reports, preparing audit remediation plans and manually executing budgets, a modern approach enables technology to drive iterative, customer-focused engagement and creates and marshals electronic resources.

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Borrowing for your college from your Uncle Sam — Doug Criscitello

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

From The Hill

Let’s consider student loans for a moment. Many of the candidates for president have promised relief of some sort from the high cost of college tuition.  That’s not surprising considering that 40 million Americans currently hold student loans and that debt incurred for education now lags only mortgage debt as a source of consumer indebtedness—logging in at the astonishing total $1.2 trillion. And, here is the rub, most of that debt has been loaned directly by the government and, as the current policy debate illustrates, students who borrow from the government don’t necessarily have the same expectations and sense of repayment obligation to their lender – as those receiving loans from a private financial institution.

Decisions made in the 1990s to transform the US government’s role in providing student loans, from that of a guarantor to a direct lender, were driven primarily by budgetary rather than policy considerations. Direct lending had a clear advantage because it had a dramatically lower price tag than the guaranty program at the time. And when private lenders became reticent to assist students during the darkest days of the 2008 financial crisis, direct loans from the government became the primary source of student loans in the US and the guaranteed student loan program was abolished.

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Investors should worry about China’s debt-burdened cities — Deborah Lucas and Doug Criscitello

MIT Sloan Prof. Deborah Lucas

MIT Sloan Prof. Deborah Lucas

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

From Fortune

High rates of debt growth by local governments are a cause for concern in any country. In China, where recent turmoil in the equity and foreign-exchange markets has put a spotlight on that country’s economy and growth prospects, increasing levels of borrowing by provincial and other lower levels of government has resulted in local indebtedness rising nearly four-fold since 2008, reaching about 40% of GDP.

Debt growth of that magnitude raises concerns about fiscal sustainability, debt affordability, transparency and accountability. Cautionary tales abound. From New York City in the ‘70s, emerging market countries in the ‘80s, Russia in the ‘90s, and Detroit, Greece and Puerto Rico more recently, there is a long list of governments that have experienced the painful economic repercussions of taking on debt they could not afford.

While the massive debt buildup in China presents challenges, the situation is not as dire as a full-blown debt crisis, a new policy brief from the MIT Center for Finance and Policy by Xun Wu, a visiting scholar, suggests.

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